A survey of the construction industry indicates that the sector suffered its biggest drop in activity so far this year, during November.

The BNP Paribas Real Estate Ireland Construction Purchasing Managers' Index (PMI) recorded 44.5 – down from 47.3 in October and the lowest figure so far in 2023. Any figure below 50 means that activity fell.

BNP Paribas said that activity in the sector had now decreased for five successive months.

Survey respondents blamed a slowdown in the economy, the completion of projects, and delays in decision-making by clients as the main factors in the drop.

Employment dips

Firms recorded declining activity across the three different categories of construction, with the biggest drop coming in housing (43.5). Commercial activity, which had recorded modest growth in October, slumped to 43.8.

There was a slight fall in employment in the sector for the first time in almost a year.

Although companies experienced the sharpest rise in costs since August, the rate of inflation remained much weaker than it was during 2021 and 2022.

BNP Paribas added, however, that business confidence strengthened in November, with 32% of respondents predicting a rise in activity over the coming year. Positive sentiment reflected hopes for an improvement in economic conditions and the start of new projects.

Developers ‘cautious’

John McCartney (director and head of research at BNP Paribas) said that rising interest rates and construction costs had made developers more cautious about commercial property, with early-stage activity affected by a weaker 2024 pipeline.

“In Dublin’s office market, developers have heeded the signals of rising vacancy and softening lease terms to turn off the supply tap. Completions will fall by 25-30% this year, and the 2024 pipeline is lower again,” he continued.

“Indeed, with speculative commencements off the table for next year, this slowdown in office building may persist until 2027,” McCartney said.

He described the continued weakness in the residential sector as “more surprising”, as the latest national accounts had indicated that investment in new dwellings had risen by 8.4% compared with the first three quarters of 2022.

“The most likely explanation is that activity has temporarily slowed in October and November due to projects being completed as we approach year-end,” McCartney concluded.